If the short sellers are right, the price is going down long term if you lend shares to them or not. (The short sellers may not be able to profit from it as much, but a worthless company will be found out eventually.)
If the short sellers are wrong, the price will not being going down long term, whether you lend shares to them or not; might as well profit from it if you can.
Your mistake is in thinking your choice to lend shares to short sellers has any impact. If you're buying shares of Apple for your retirement account, the price when you go to retire will be whatever it is, regardless of whether your shares were lent to short sellers.
Some brokers let you opt out of lending shares out, but if you're ever long some shares and you're afraid that the company is actually doing some major fraud and the price might drop to zero if the short sellers are given an incentive to publicize it then why are you long this stock?! Conversely if you're confident the company is healthy, then clearly the short sellers will just lose a bunch of money; why not take a slice of that?
What you're saying should be absolutely correct, but in practice incredibly naive.
First, I don't disagree the market and price discovery can benefit from shorting. But here we're talking about retirement accounts that are already long the stocks in question. There's no world in which the owners of those stocks benefit from them being lent out to short sellers, despite creative rhetoric to the contrary. If the shorters are right and the company is a fraud, it's STILL not in the interest of owners of stock in that company to lend their shares out. If anything, it's even MORE in their interest to NOT lend them out to be sold short, instead, they need all the help they can get to keep the price up so they can make a controlled exit themselves.
Second, why, if a decrease in price is all just an artifact of shorting, and it is in fact a solid, profitable business with a bright future, can't this be easily countered by simply pointing that out and buying the shares at a discount until the market catches on and the price skyrockets back up?
Because, unfortunately, it's much easier to just go with the momentum and jump on the shorting bandwagon, betting the stock will go down even more. Even if you tried to stem the drop, the short sellers can just borrow even more stocks and continue to overwhelm you with selling pressure.
This dynamic plays out all the time in US stock markets, and this isn't even taking into account abusive naked shorting, which is actually kinda sorta illegal except even the rules against that aren't meaningfully enforced.
> Even if you tried to stem the drop, the short sellers can just borrow even more stocks and continue to overwhelm you with selling pressure.
The problem with this kind of reasoning is that it applies even more strongly in reverse, because herds of long-oriented speculators aren’t bound by the need to borrow stock or sell on an uptick, etc. Short-oriented speculators need capital, stock borrow, and upticks to sell stock. Long-oriented speculators just need capital.
Again, should be true but often simply doesn't play out that way in practice. The stockholders may be very diffuse groups of people, or mostly represented by proxies (eg fund managers) that don't have any real incentive or ability to organize a counternarrative and counterdrive to counteract concerted, well organized shorting, with all that entails in terms of media FUD etc etc.
Hell, even in cases where long oriented speculators really do bite back, and in even in the fraction of those cases where they're able to have any success, they still get ridiculed in the media and in the industry.
> There's no world in which the owners of those stocks benefit from them being lent out to short sellers, despite creative rhetoric to the contrary.
Not true - many mutual funds pay out securities lending revenue to investors. For example, VTSAX had ~$170M in net lending revenue in 2020, about 1% of fund total income (nearly all of overall income is from dividends).
> If the short sellers are right, the price is going down long term if you lend shares to them or not.
Your mistake is assuming predatory short sellers don't exist.
> If the short sellers are wrong, the price will not being going down long term, whether you lend shares to them or not; might as well profit from it if you can.
If people want to pay a premium to not loan out their shares, let them and adjust the price accordingly. That's how markets are supposed to work. Why do people buy Berkshire A instead of Berkshire B? I realize there is a subtle difference (apart from price), but I know people that pay the premium without knowing what it is. Shouldn't you be happy to profit from an investor's ignorance?
Make it an option and let people vote with their money. That's what markets are for.
> Some brokers do let you opt in and out of lending shares.
I'm aware of this, but it's not an option for a retirement account. That's the entire point we're debating, is it not?
> Short sellers cannot drive companies to bankruptcy.
I honestly don't know how you can believe this. If they drive the price so low that the company is unable to manage its debt they are forced to declare bankruptcy, the short sellers never have to close their positions and they keep all of the profit. So not only can they do it, they have a strong financial incentive to do so.
> If they drive the price so low that the company is unable to manage its debt
....that's a bit like saying short selling costs lives, because if short sellers drive the price so low that the headquarters catches fire, people might die in the flames.
See, the problem here is that driving a share price down doesn't stop you from managing your debt. Which is a key reason why there are no documented cases of short sellers driving healthy companies into bankruptcy.
You moved the goalposts from "it's impossible for shortsellers to bankrupt a company" to "it's impossible for shortsellers to bankrupt a healthy company." Rather than continue to argue and get nowhere, let's just disagree.
Okay, let's steelman the argument then. Short selling a company's shares cannot bankrupt the company. Happier?
(Again, I say this because there is no theoretical mechanism by which selling stock short can realistically cause bankruptcy - contrived examples to the contrary. And we know they're contrived examples because it's never actually happened.)
If the short sellers are wrong, the price will not being going down long term, whether you lend shares to them or not; might as well profit from it if you can.
Your mistake is in thinking your choice to lend shares to short sellers has any impact. If you're buying shares of Apple for your retirement account, the price when you go to retire will be whatever it is, regardless of whether your shares were lent to short sellers.
Some brokers let you opt out of lending shares out, but if you're ever long some shares and you're afraid that the company is actually doing some major fraud and the price might drop to zero if the short sellers are given an incentive to publicize it then why are you long this stock?! Conversely if you're confident the company is healthy, then clearly the short sellers will just lose a bunch of money; why not take a slice of that?